Volume II Number 32 – This Was The Week That Was – An Amtrak Saga

June 28, 2002

Well, it certainly was an interesting week, as predicted. Right up until 7:00 P.M. today (Friday) the drama played out, bit by bit.

We all learned several lessons this week:

1. Focusing on reality: For all of the gnashing of teeth, gigantic games of Chicken, and posturing, a deal was finally reached between the Amtrak Board of Directors and the Bush Administration for a financial rescue package of up to $270 million to keep Amtrak running through the end of the fiscal year.

   In the end, it was an exercise in what Washington does best: reaching consensus on an issue that everyone can live with for the moment.

   We cannot lose sight of the fact that this financial crisis was STRICTLY an in-house crisis manufactured solely by Amtrak. You can’t pin this one on Congress or anyone else.

   The current Amtrak Board of Directors and its previous management team continually did their best to hide Amtrak’s financial condition from everyone in official Washington who in any possible way could assist Amtrak in running a smooth operation. It was not until after newly installed President and CEO David Gunn arrived on May 15th that anything came to light, and then it was almost too late.

   Yes, much of official Washington knew Amtrak was going to run out of money, but Amtrak never bothered to tell anyone the date or time this was going to occur.

   Another part of this self-inflicted crisis and continual search for free federal money was Amtrak’s own bad-mouthing and downplaying of the significance of the national long distance system.

   The Warrington regime for years let it be known the long distance system was merely a stepchild of the allegedly really important part of the system – the Northeast Corridor – and so, following this cue, many in Congress, the Bush Administration, and the news media incorrectly presumed that the long distance system was not only expendable, but almost completely undesirable.

   Oh, what a tangled web we weave when first we begin to deceive. This misconception nearly cost Amtrak some highly critical support, and it could have lost the company in the process.

   Here’s hoping David Gunn will make sure that the national long distance system is recognized as the important part of our domestic transportation network that it is, and should be expanded, not shrunk.

   An interesting and welcome part of the agreement reached for the interim financing is that Amtrak cannot have any type of system expansion for 15 months, that the company must concentrate on upgrading its current routes and rolling stock assets, thus stabilizing a very fluid situation before any new expansion.

2. Some pretty big corporate names have fallen into disrepute this week and in the previous couple of months, including Enron, Worldcom, and Xerox. Other major companies have hinted that they may have similar problems, too, about lying about the financial health of public companies. President Bush publicly said this week he intends for the federal government to go after corporate miscreants and make them pay for the damages they have caused.

   OK, now, what about an investigation of Amtrak to go along with all of this? Too many free federal money has gone up in smoke at Amtrak since the arrival of Tom Downs and then George Warrington as Amtrak presidents in the 1990s to earlier this year.

   If we, as a country, are going to hold Corporate America responsible for fraudulent accounting, obfuscation, and hiding basic facts from the government and public, then Amtrak should have to face the same music.

   Don’t forget that Amtrak’s public accounting auditors still have not certified Amtrak’s books from last year because they are not satisfied with the state of Amtrak accounting. What’s good for the private sector is good for the semiprivate sector, too, even though Amtrak does not fall under Securities and Exchange Commission rules. Amtrak still must follow the law, though, and it should be held accountable for its actions or misdeeds.

3. Part of this week’s drama included the fact that Amtrak’s Board of Directors refused to go along with some of the Bush Administration’s demands for reform, including the inclusion in new labor agreements that the company could contract out some functions to private companies.

   Talk about biting the hand that feeds you.

   Here the company is financially prostrate, has no commercial lenders it can turn to, and is at the door of the federal government as a last resort to keep the trains rolling. And, they wanted to argue over possible future contracts?

   One has to wonder about this current board of directors and where their true sentiments lie. Are they more concerned about organized labor than their passengers? Are they so narrow-minded that they won’t even discuss what’s best for all of the company, country, and vast majority of its organized labor force?

   While it’s true that Amtrak’s unionized employees have taken a tremendous beating over the years, often because of Amtrak mismanagement, everything still must be viewed in a proper context and “big picture” scenario.

   One excellent part of the agreement is Amtrak making its financial statements more readily available to all interested parties in the government and elsewhere.

   Finally, we’re going to know the true story of Amtrak finances. Three cheers for this move.

   It’s interesting to note that the late Graham Claytor, Amtrak longest serving President who retired in the early 1990s, always refused to allow Amtrak finances to be delineated by routes. He always had an overall, company wide picture presented. His reason? He knew that if route numbers ever came out, exactly what happened this week was going to happen – critics would target specific trains and routes for criticism and elimination, and not look at Amtrak as an entire entity.

   The old gentleman was pretty smart about that. He understood that Amtrak must be viewed from a national perspective, not a regional perspective. He also understood connectivity and how the matrix theory works, that one part of the system feeds all other parts of the system.

4. One of the spectacles this week was monitoring the Internet and the groanings and moanings of the rail fan and rail advocacy community.

   One had to think the sky was falling, there was such silliness. With little thought of analysis of a plethora of information that was available, plus basic political considerations, many were sure that their alleged “entitlement” from the federal government to provide passenger train service at any cost was going to go away.

   Lots of sad things were said, accusations were made, reputations were questioned, and many were sure that the Bush Administration had to be the Devil Incarnate, at the least because it dared to breathe the “competition” word as part of a rational discussion.

   In the end, everything has worked out, for the moment. But, be sure that plenty of new debate is going to take place between now and next year when the Amtrak Reauthorization works its was through Congress. And, that FULL debate needs to happen.

   Even though Amtrak is “fixed” for the next few months, it is still a fundamentally flawed company that has not worked well for over 30 years. And, these annual budget shortfalls and battles have become more than tedious. Here’s hoping Congress, the Bush Administration, and Amtrak continue to work together to solve the many fundamental problems of Amtrak in a clear, reasonable, and precise manner that will ensure a future for productive passenger rail service in our country.

5. This bears repeating: The best thing Amtrak could do for its financial health and prosperity is encourage Congress to spin off the infrastructure of the NEC to another government entity which would be responsible for the maintenance and upgrading of the tracks and infrastructure system.

   Andrew Selden, as usual, said it best:
   

   “How could anybody in David Gunn’s position not see that embracing this idea is a godsend, to get the $800+ million A YEAR infrastructure albatross OFF HIS BOOKS and off his back?

   “The NEC infrastructure should be owned as a federally-owned terminal district RR with free access to anyone who wants to use it in exchange for an access fee based on the SFGTM formulas, with a premium for dispatching and liability risk. … Probably, Amtrak would oppose this, and their only economically rational grounds would be that an objective, economically sound, PRICING mechanism for the use and upkeep of track and bridges based on volume, velocity and weight would be like a silver stake straight through the heart of [Acela] …”

6. For those interested in the official statement from DOT Secretary Mineta on Friday evening concerning the financing agreement, here is the text:
   

   “THE HONORABLE NORMAN Y. MINETA
   SECRETARY OF TRANSPORTATION
   ANNOUNCEMENT ON AMTRAK AGREEMENT
   WASHINGTON, D.C.
   June 28, 2002

   I am very pleased to join Amtrak Chairman John Robert Smith, in announcing that the Department of Transportation, and Amtrak, have reached agreement on the first phase of a two phase financial assistance package. Our goal was to ensure uninterrupted service for the over 750,000 Americans who rely on Amtrak and our nation’s commuter rail services every day — we have accomplished that goal.

   Both parties have agreed on a direct $100 million loan under the Railroad Rehabilitation and Improvement Financing (RRIF) program, to be followed by a joint request from Amtrak and the Administration for the Congress to provide not more than an additional $170 million in operating funds for the remainder of this fiscal year.

   I thank Chairman Smith and Amtrak’s entire Board of Directors for their ongoing efforts toward improving the company’s financial accountability and operational transparency. Mayor Smith arrived in Washington Monday to help solve this crisis, and he has stayed with the effort all week long. Thank you John Robert.

   As I have said before, it is not the sole responsibility of this Administration to solve Amtrak’s immediate or long term economic situation.

   So I call on the Congress to join the Administration in developing long-term, fundamental reform of our nation’s intercity passenger rail system, consistent with the principles I outlined last week that will ensure consistent, reliable passenger service for all Americans.

   In fact, this agreement is an initial, very modest down payment on implementing the Administration’s first principle for passenger rail reform — placing Amtrak’s operations on a sound financial footing.

   The conditions agreed to today by the Administration, Amtrak’s Board of Directors, and Amtrak management, reflect a new approach to running this railroad in a more open, business like fashion.

   Under this agreement, Amtrak will provide clear, timely, financial information to the board of directors and DOT; Amtrak will complete a third-party study to identify a full range of possible management efficiencies and cost reduction options; Amtrak will provide a complete list and value of its current assets; Amtrak will provide a list of at least $100 million in operating reductions.

   In addition, Amtrak agrees to seek the cooperation of all of its employees in achieving the operating cost reductions needed to meet Amtrak’s financial crisis.

   The Bush Administration is committed to a viable system of intercity passenger rail. However, this crisis proves clearly that without real reform, Amtrak will continue to lurch from crisis to crisis.

   The debate over the future of reform will not be easy. Now I’m not under any illusions. But one thing remains for sure, this crisis, temporarily resolved, will inevitably be repeated again and again, until we develop a lasting solution.

   This is no time to stand on the sidelines offering unrealistic solutions and criticism to those who are engaged in trying to resolve this issue.

   I urge all parties, including the Congress, Amtrak, labor leaders, state officials and, of course, the traveling public, to join the Administration in a national debate for lasting and meaningful reform of our intercity passenger rail system. Americans deserve nothing less.”

   We need more of this, and less hiding of the real facts. The days of “we’re on the glide path to self-sufficiency and Amtrak has record revenue and numbers of passengers” need to be long gone.

   Plain talk and honesty need to be the hallmarks of Amtrak’s corporate culture.

That’s it for this week. It’s hard to tell if anything in the near future will top what has happened, now.